instead the market is up 56% from when he said this in 2012
Stocks will no longer generate the kinds of returns they've had over the past century, ending the "cult of equity" that has been Wall Street's mantra for generations, Bill Gross, managing director at bond giant Pimco, says in his monthly market analysis.
Bill Gross PIMCO
Tim Boyle | Bloomberg | Getty Images
Bill Gross PIMCO
He also predicts the stock market's consistent annual return will be reduced to a "historical freak" that will never be repeated.
A global economic slowdown will lay waste to the pattern, consistent since 1912, of the market averaging 6.6 percent annual returns, says Gross, who helps run the Pimco Total Return Fund, the world's largest bond fund at $263 billion.
Thus will fade the "cult of equity" espoused by Wharton professor Jeremy Siegeland his disciples who believe, with the exception of brief bear markets, that stocks are the most consistent game in town, Gross says.
"The cult of equity is dying," he writes. "Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investorsâ€™ impressions of 'stocks for the long run' or any run have mellowed as well."
Gross is the latest high-profile industry name to pronounce the stock market moribund if not completely dead.
David Rosenberg, the economist and strategist at Gluskin Sheff, used almost identical language to Gross in declaring Monday that the "equity cult is nearly over."
Morgan Stanley chief market strategist Adam Parker, who sees the market falling 12 percent by the end of year, said the only reason to buy stocks now is in anticipation that Republican Mitt Romney will win the presidential electionin November.
Though strategists at larger investment houses such as Bank of America Merrill Lynch and JPMorgan remain bullish on stocks, investors have taken a dimmer view. They pulled $9.4 billion out of stock-based mutual funds last week alone and poured money at near-record numbers into high-yield bonds.
For his part, Gross argues that the return of stocks above the rate of economic growth as measured by gross domestic productcannot be sustained.
"The 6.6 percent real return belied a commonsensical flaw much like that of a chain letter or yes â€” a Ponzi scheme," he says. "If wealth or real GDP was only being created at an annual rate of 3.5 percent over the same period of time, then somehow stockholders must be skimming 3 percent off the top each and every year.